Novateor Research BSE SME IPO review (Avoid)

•    NRLL is in novel personal care product business with just one product with three variants.
•    It has dismal financial data despite jump for top and bottom line in a pre-IPO year.
•    LM has poor track records.
•    The issue is priced exorbitantly and may be skipped.

ABOUT COMPANY:
Novateor Research Laboratories Ltd. (NRLL) is leading the development of novel personal care products that are intended to provide a safe, easy and innovative approach to the existing traditional personal care solutions. NRLL develops products that could provide significant clinical as well as commercial advantages.

Currently, the company manufactures FDCA approved teeth whitening products in three variants and are marketed under the brand name ' SmiloShine'.  The company intends to expand its business in cosmetics, various health care pharma products and speciality pharma in the near future.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 4.24 cr.) NRLL is coming out with its maiden IPO of 1872000 equity shares of Rs. 10 each at a fixed price of Rs. 24 per share to mobilize Rs. 4.49 cr. The issue opens for subscription on 30.08.19 and will close on 04.09.19. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 38.72% of the post issue paid-up equity capital of the company. NRLL will spend Rs. 0.25 cr. for raising Rs. 4.49 cr.

The issue is solely lead managed by First Overseas Capital Ltd. and Karvy Fintech Pvt. Ltd. is the registrar to the issue. Beeline Broking Ltd. is acting as the market maker for this issue. Having issued initial equity at par, the company further issued/converted equity shares in the price range of Rs. 185 - Rs. 250 between March 2012 - February 2019. It has also issued bonus shares in the ratio of 17 shares for every 1 share held in February 2019. The average cost of acquisition of shares by the promoters is Rs. 10.07 and Rs. 10.10 per share. Post issue, NRLL's current paid-up equity capital of Rs. 2.96 cr. will stand enhanced to Rs. 4.83 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, NRLL has posted turnover/net profits - (loss) of Rs. 0.16 cr. / Rs. - (0.003) cr. (FY17), Rs. 0.11 cr. / Rs. 0.001 cr. (FY18) and Rs. 0.51 cr. / Rs. 0.22 cr. (FY19). For the last three fiscals, NRLL has posted an average EPS of Rs. 0.37 and an average RoNW of 2.66%. The issue is priced at a P/BV of 1.74 on the basis of its NAV of Rs. 13.76 as on 31.03.19 and at a P/BV of 1.35 on the basis of post-issue NAV of Rs. 17.73. If we take FY19 earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 52 making it exorbitantly priced. Even its financial data is not matching the asking price.

COMPARISION WITH LISTED PEERS:
As per offer documents, NRLL has shown Procter and Gamble Health as its listed peers which is very surprising. They are not at all comparable on an apple to apple basis. Procter and Gamble is currently trading at a P/E of around 8.4 (as on 29.08.19)

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's track record front, this is the 14th mandate from its stable. Last mandate of Sudarshan Pharma could not garner the required subscription despite reducing the offer price and extension of the subscription period. Out of last 10 listings, 5 opened at discount to offer price and the rest with premiums ranging from 1.67% to 25%. Thus it has poor track records.